Different Types of Estate Settlements:

     Probate: Probate potentially applies when a person dies leaving assets. Assets are transmitted from the person passing to the persons named in the deceased’s Last Will and Testament. If the deceased has no Will, then assets pass under “intestacy.” A common misconception is that “intestacy” means assets going to the government. This is not so, intestacy passes by statute to specified relatives (including the surviving spouse), but NOT usually to the government. Intestacy only provides for assets to go to the government if there are no surviving relatives. The family relation to take by intestacy is very broad,and there are priorities. However, generally speaking the only assets that “go through probate” are assets in the sole name of the person passing. Assets in joint name by survivorship, or in beneficiary form do not generally go through probate.

    Trust Settlements: Assets in a trust that transfer at the death of the person passing will be settled within the trust. That is, such assets are settled outside probate. There are many different kinds of trusts. A trust can provide for assets to remain in trust after the death of the trust creator. In such a case, the trust would not be settled at death, it would be settled at the time specified in the trust. However, the type of trust typically referred to as a “living trust” usually refers to transfer at the death of the trust creator. Such living trusts are settled shortly after the death of the trust creator.

Elements to Settling an Estate, either Probate of Trust Settlement:

7 Elements for Commencing Estate Settlments.

Element #1: Legal documents.  

All documents that the deceased used to plan his or her estate need to be collected and analyzed. This includes all trusts, Wills, beneficiary designations, Deeds to real estate owned, information on business entities owned, and all other related legal documents. Do not panic if there are no such legal documents at all. Statutes of “intestacy” create a “default Will” by statute. State law then determines who gets assets from the estate. The advantage of having a Trust or a Will is that the deceased person can specify such things, rather than just accepting the “default Will,” and default beneficiaries.

Element #2: Beneficiaries.

The natural thought of many, but not all, folks is beneficiaries such as children or surviving spouse of the deceased. True, that is the identity in part of many beneficiaries in many estates. However, that is not true in all estates. Some deceased persons have no surviving children, and no surviving spouse. Some are estranged from their children and have a Trust or a Will that “cuts out” the children. Some clients are motivated to name a charity, in some cases a small portion of the estate. In other cases, the client’s legal documents specify for one or more charities to have the bulk, or even all, the estate. Experienced estate practitioners easily adjust to whomever the deceased person’s beneficiaries are. In estate planning, the deceased person’s legal documents generally benefit the deceased’s “objects of bounty.” The “objects of bounty” are the persons who the deceased wanted to benefit from the estate.

Element #3: Executor/Executrix/Personal Representative OR Successor Trustee/Trustee.

Once someone dies, there is a person who administers the estate. This is true whether the estate is a “probate estate” or a “trust estate.” Unfortunately, the terminology (names) are different for probate and for trusts. In probate, the person in charge is the Executor or Executrix or Personal Representative. With a trust, the person in charge is most often a “successor trustee.” However, in a significant number of cases the trustee serving may not be the trust creator who died. Then, the person would continue serving as trustee, without being called “successor.” Both in Probate and in Trust Settlements there can be multiple persons serving in the role to administer the estate. Also, the person(s) can be an individual, say a family member, but also can be a commercial trustee.

Element #4: Assets.

All the assets and wealth of the decedent goes into the mix and needs to be reviewed. Many estates have some assets in beneficiary form, or in joint name. Such assets aren’t administered in either a Trust or in Probate. However, all such assets or potential assets should be reviewed to be sure to determine for certain the status of each asset.

Element #5: Creditors, Potential Creditors and Liabilities.

A properly administered probate estate or trust settlement will collect all liabilities and creditors (definite or potential). Distributions to the deceased’s beneficiaries should only take place after dealing with such debts. There is a process for “clearing” such creditors and liabilities. Debts that are not valid can be contested. The person administering an estate can be held liable for such debts of the decedent if the process is not followed.

Element #6: Special Problems in Probate and Trusts.

There are a large number of special issues that can arise. Only a few of the most prominent will be mentioned here: homestead, forced heirship, spousal rights, spousal elective share, real estate to sell, closely held family businesses, and many others.

Element #7: Team of professionals.

The professionals to include in the estate settlement vary greatly from one estate to another. Always a qualified estate attorney should be used. You may want to consider an attorney who is Board Certified by the Bar in Trusts, Wills, and Estates. Aside from an attorney, particular estates may involve: accountant/CPA, financial advisors, appraisers, commercial trust companies, and others. For some estates maybe only an attorney is consulted. For larger estates a whole stable of capable professionals may be assembled.

     Phases and Steps in Probate or Trust Settlements.

There are 3 main Phases in the process of settling an estate.

Opening phase.  The first phase is the “opening phase.” In the opening phase, the elements above are collected and analyzed. The person to administer the probate estate or the trust qualifies to act, and takes control of the assets to be administered. The beneficiaries, assets and liabilities are identified. Special problems are identified as early as possible. Finally, the executor or successor trustee assembles the team of professionals to assist in the seening phase. ttlement.

Intermediate phase. In the next steps, the executor or successor trustee continues to assemble the assets, and deals with creditor clearance procedures.

Closing phase. Finally, the executor or successor trustee deals with distributions to beneficiaries, accounting to beneficiaries, and activities needed to close the probate or trust.

Steps for each phase of the process. The steps to take in each phase are not always identical for every estate. The steps are somewhat different for a probate or a trust settlement.

     Big risk of legal liability for executor or trustee.

Whether an estate is administered in probate or in a trust, the person in charge has “fiduciary” responsibility. A “fiduciary” is held to a higher legal standard. The fiduciary level of responsibility means a disgruntled beneficiary finds it easy to sue, and much easier to win a suit against a fiduciary. Because of the significant risk of legal liability all fiduciaries, including executors, executrixes, personal representatives, and successor trustees, need to have top quality legal representation for their own protection.